Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 2000 Taxes 101 John Barrick Chad Coons

Slide 5-2  The hardest thing to understand in the world is the income tax.  -- Albert Einstein  The trick is to stop thinking of it as 'your' money.  -- Revenue Auditor Quotable

Slide 5-3 Topics  Forms  Filing Status  Personal Exemptions  Standard or Itemized Deductions  Self-Employment Issues  Multi-State Issues  Earned Income Credit  Child Credit  Educational Credits/Issues

Slide 5-4 Forms  Taxsites.com  Some version of Form 1040 (federal)  Utah  Any other states where you worked that have an income tax

Slide 5-5 Filing Status  If married on the LAST day of the year.  MFJ (married filing joint) rates  If spouse incomes very similar, single rates generate lower tax  If spouse incomes dissimilar, married rates generate lower tax.  MFJ rates apply to Surviving Spouse  widow or widower with a dependent child for 2 more years after death of spouse.  MFS (married filing separately) rates are less favorable. Typically used by separated spouses.

Slide 5-6  An unmarried individual not a surviving spouse may file as head of household if they maintain principal residence for a child or other dependent family member.  Single is the default category for unmarried individuals (neither surviving spouse nor head of household). Filing Status - Unmarried

Slide 5-7 Exemptions  Personal exemption for the taxpayer (2 for MFJ).  You cannot claim yourself if someone is claiming you.  Exemption = $3,000 in 2002 for each personal or dependency exemption.

Slide 5-8 Tests for Dependency Exemptions  Family member OR live in your home for entire year.  You provide > 1/2 financial support  Dependent’s gross income < exemption amount ($3000)  waived for child < 19 OR student- child<24  Dependent may not generally file a joint return.  Dependent must be a U.S. citizen OR a resident of US, Mexico, Can

Slide 5-9 Deductions  You may take the larger of the following:  Standard Deduction  Easier and more likely  Itemized Deductions  Charitable contributions  Mortgage interest  State taxes  Medical Expenses

Slide 5-10 Standard Deduction  Depends on filing status. For 2002:  MFJ = $7,850  MFS = $3,925  HOH = $6,900  Single = $4,700  Blind or aged (>=age 65)  MJF, MFS = additional $900  HOH or Single = additional $1,150

Slide 5-11 Self-Employment Issues  You need to fill out a Schedule C for each separate trade or business  You report the net income here  Income (1099) less expenses  Self-employment taxes  Be prepared for bad news

Slide 5-12 Expenses  What can I deduct?  Travel  Mileage or actual vehicle expenses  Standard rate is 36.5 cents per mile  You should have written proof  Expenses while away from home  Meals (limited to 50%)  Other expenses  Copies, Advertising, Rent, Wages

Slide 5-13 Multi-State Issues  Have you earned income in more than one state?  Are you a resident of a state other than Utah and earned money in Utah?  States without personal income tax (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming).  You will file as a “resident” in one state and a “non-resident” in the other.  You need to apportion your income between states to avoid paying state income tax twice.

Slide 5-14 Continued  Different states do this in different ways.  You should do your non-resident form first.  Most non-resident states only tax you on the income earned within that state.  You need to determine your other state liability if any (not the amount you paid in withholding)  Your resident state will likely tax all of your income and give you a credit for tax paid to another state.  Typically, you end up paying taxes at least as high as your resident state.

Slide 5-15 SE Taxes  This is the bad news  15.3% of net self-employment income  Note you are paying the employer and employee portion of the tax  You also get a deduction for ½ of tax on Page 1 of your Form 1040 (but remember that the deduction is only saving you a fraction of the whole dollar you are paying).